Transcript: Seib & Wessel Breakfast With Jason Furman

Jason Furman, chairman of the White House’s Council of Economic Advisers, said the Obama administration won’t dictate a congressional budget deal. Below is the lightly edited transcript from the Seib & Wessel breakfast hosted by The Wall Street Journal on Nov. 4.

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Jerry Seib: Let me just start with a column my colleague David wrote last week in which he had an important debate with Larry Summers over how much the deficit matters these days and I invite you to join the debate. Larry is essentially arguing these days that we should stop worrying about the deficit and focus exclusively on economic growth for the near term. Is he right, is he wrong, or at least how right is he?

Jason Furman: I guess I’ll agree with Larry that everything comes in threes and so I’ll divide my answer into three parts.

First is the short run deficit and there you’ve seen it coming down extremely rapidly, it’s come down by nearly 6 percent of GDP in the last 4 years, which is the largest 4-year decline with the exception of demobilization from WWII and nearly half of that decline in the deficit happened in just this past fiscal year, so we’ve had a very large fiscal headwind and the fact that we’ve had decent growth over the last year is a testament I think to the strength of the private sector powering through that headwind. So we certainly don’t need faster deficit-reduction in the near term, in fact quite the opposite, we need more support for jobs in the near term, so that would be the first point.

The second point, which I think is less widely appreciated, is it’s not just that the near term deficits has come down, the long run deficit outlook is also considerably better than it used to be. So you look at the Congressional Budget Office’s 75-year outlook and what most economists would look at for the measure of the deficit – “the fiscal gap” or how much you would need to raise taxes or cut spending today to stabilize the debt over a 75-year window — and their fiscal gap over 75 years is a little bit less than 2 percent of GDP. Now, if you look at the debt 75 years from now it spirals and goes really high but every time you have a small wedge things get very large. In contrast, I used to write things before CBO was doing the estimate with Alan Auerbach and Bill Gale and we generally had numbers that were nearly 10 percent of GDP. So the 75-year outlook is considerably better and that’s because of projections around health and some of the changes we’ve made in terms of revenue and things like the Affordable Care Act that has significant long-run deficit reductions.

The third point is that as a matter of politics and as a matter of substance I think doing more in the near term to support jobs is related to doing more over the medium and long term for deficit reduction. And to look at something like the President’s budget, and it proposes to replace the sequester with savings that save less up front and save considerably more over the medium and long run, it proposes up front jobs, again, paid for in that type of back-loaded way. And I can’t imagine any way that you’re going to be able to do anything up front to deal with a sequester and deal with jobs that doesn’t simultaneously cut the deficit over the medium and long run. I think that’s not just the sensible economic policy, I don’t think there’s any other political paradigm for doing that.

David Wessel: You referred to “decent growth” but as I’m sure you agree it’s disappointing growth. Given the political environment, given the constraints and given as you’ve pointed out the reluctance to do anything in the near term unless it’s embedded in long-term deficit reduction, is there anything practical that you think could be done in the next 6 to 12 months that would quicken the pace of growth, or are we going to be in a situation where the President says well, if you took my suggestions things would be better, Congress says no thanks and then we’re stuck?

Furman: Absolutely and I put those things into two categories. The first category is the do no harm and the second is do some good. And this week we’re going to get two big pieces of economic data. On Thursday we’re going to get GDP for the third quarter and on Friday we’re going to get jobs for October and that will be interesting because Thursday’s data will tell you what the economy was like before the shutdown hit, before the debt limit brinksmanship so it will be like this little historical picture of where we were. And then October will tell you what happened to the economy in part because of the shutdown and because of the brinksmanship. And most of the private sector forecasts are that the third quarter growth number will be a lot better looking than the jobs number for October. If you do see a juxtaposition like that tell you something about the consequences of doing harm to the economy, and we estimated that the shutdown will cost 120 thousand jobs, 0.25 percentage points off of GDP. The GDP estimate is conservative by the standards of others so if we don’t repeat that type of thing again, that itself will help the economy.

Most of the fiscal drag at this point has been digested, the deficit came down by 2.7 percent of GDP this past year, it’s not coming down by another 2.7 percent next year. You see a little bit of strengthening in China, you see European growth turning positive, you see potentially a certain amount to the effect of interest rates on mortgages working their way…having worked their way through the system, we’re in the process of that, so I think there’s a number of positives in the economy that if we just don’t mess things up will be there for us in 2013, so that’s the first thing. The second thing though is to do some good on top of the no harm. And good, you have a conference committee on the budget and that’s a great opportunity to do some good, you have issues like immigration reform, the farm bill, an opportunity for a grand bargain on jobs in that conference committee or in some other venue that does business tax reform, infrastructure, training, manufacturing so there’s a lot of opportunities to do good. But the do no harm, I wouldn’t underestimate how many strengths there are in the U.S. economy.

Wessel: In “do some good,” what is it you think is most likely to come out of the conference committee that would really make a difference?

Furman: I don’t want to handicap but you know what we’ve put forward and I eluded to it before but it basically replaces the sequester, it has a combination of tax reform and entitlement reform and it has up front support for jobs, so those are the four key elements the President proposed doing those elements in a balanced way, the conference committee certainly understands where we’re coming from but there is an opportunity to do regular order…

Wessel: What do you mean by “up front support for jobs”? Minimum wage, infrastructure?

Furman: Oh, minimum wage, yes, but that wasn’t what I was talking about in the context of the budget but obviously that’s an important thing. No, the President has $50 billion of infrastructure most in the form of Fix It First, additional money for teacher jobs, I can’t remember the exact number, I think 700 thousand or so, could be fact checked on that, below where we were at our peak in 2008 so some measures like that in terms of job.

The following questions were posed by invited guests:

Q: There’s going to be a bunch of openings on the Federal Reserve Board and I don’t think there’s a risk of the President nominating an inflation hog but I think there is this oversimplified and there are differences among those who are primarily worried about addressing unemployment and those who are more worried about perhaps creating the next financial bubble. How much thought are you putting into this and I’m just curious to know how much is kind of direct involvement with the President could be and have in this decision and do you think this is one of the key ingredients in actually kind of addressing the short term problems?

Furman: I think it’s clever to take a topic that you know we don’t comment on, which is monetary policy, which is obviously done independently by the Fed, and recast as the nomination which obviously the President is very much responsible for and is an independent. The President spoke and I think probably…I mean, I haven’t gone back and checked this with other presidents but my guess [is he has talked more] fulsomely about his philosophy or what he’s looking for in a Fed chair and that’s the same type of qualities you’d look for in a governor. He’s talked about the dual mandate and he’s talked about how within the dual mandate the bigger challenge that the Presidency is right now is on the employment side but you’re not going to do well on employment if you’re not also very credible and serious on inflation so that’s all what he was looking for in a Fed chair and you’d have similar qualities in a governor. On top of that, you also want a certain diversity in terms of bringing different perspectives and expertise to bear. When you’re filling out your governors you want to look at the slate as a whole.

Wessel: But what about the question of financial instability? Even though the economy is doing decently as you put it, which I think is being generous, the markets are doing incredibly well. We have a story on the front page today about the number of IPO’s and fraction of IPO’s that are companies that have not made money for the last 12 months is greater than it was any time time since 2000. Do you have any concerns that for whatever reason we’re at risk of anything rose to doing too much and sowing the seeds of the next financial crisis?

Furman: Look, I mean I think that’s the type of thing that the Fed and financial regulators and FSOC [Financial Stability Oversight Council] are going to have to constantly be vigilant about and pay attention to and there’s a lot of apparatus in place to do that but the Treasury Secretary and the Fed Chair had spoken pretty extensively to that. I mean, I would say it’s not just that the market is high, volatility is also at a historically relatively low level and you’re not just seething in equity markets, profits are also very high as a share of the economy so you’re not just making projections based on what’s in the future, you’re actually look at what’s going on in the economy right now.

Wessel: You’re also seeing the return of some fixed-income securities that look like we used to see, these payment in kind bonds and stuff. So on a scale of 1 to 10 where 10 is a real fire, do you think we’re creeping up? How far on the scale are we?

Furman: I mean again, I think that’s for FSOC to monitor. I know you look at certain things like housing markets, some of the big ones like housing, it’s just hard to think that prices right now are particularly out of whack given where they were, given the relationship between rent and mortgage, given a number of other indicators like that.

Q: Can I draw you out a little bit more on the international scene? In your first answer you talked in basically positive terms but briefly about Europe and China. You could see both of those glasses as half empty as well as half full. What do you think is the arc in those two places right now? What’s positive, what worries you most?

Furman: There’s no question that those glasses aren’t full all the way. I was talking about their feeling a little bit better than they were six months ago not that they are feeling outstanding and perfect. I think if you look at Europe and you had six quarters in a row of negative growth and now we’re in positive growth so that double dip appears to have ended. The macroeconomic policy and the general thrust of it is in somewhat better shape than it had been and now the challenges are more on the structural side and with banking. The periphery you’ve seen more of an adjustment in things like real wages which are when you don’t have monetary policy and when you have constraints on your fiscal policy, the only way you can get out of it so in terms of real wages, in terms of exports to the rest of Europe and you’ve seen some improvements there and so there is a little bit more of an engine, a growth than some of us thought a few years ago when we were worried they wouldn’t have fiscal policy, they wouldn’t have monetary policy, their wages can’t fall, what is it that they can do, there has been a little bit of a better adjustment there. They have huge challenges still on the cyclical side, they have some big structural changes they need to make especially in banking as I said but it feels better than it did 6 months ago. China, it’s hard to tell and hard to predict and they’re going to be meeting soon and talking about some of their reforms and there’s a lot that they need to do as a country but would just note some of more recent data has come in a little bit stronger than what we had seen earlier so just from the perspective of something like U.S. Exports that would matter.

Q: Can you elaborate a bit on what we might see from the administration on the minimum wage? We’re hearing the President might make a more conservative push to pass the minimum wage bill.

Furman: I don’t have any anything to share in terms of future plans but it’s obviously something that is a really important issue to him and when you look at inequality you can think inequality is pretax and post tax, pretax and transfer post tax and transfer. In terms of the post tax and transfer we’ve done a lot in terms of things like the Affordable Care Act, the Tax Deal and other measures. There’s more we’re proposing but a lot of the action is going to have to be changing the distribution income before you can get to the tax system. Many of the biggest things you can do there are things like preschool that take decades to matter. Minimum wage is one of the biggest most immediate tools you have in that regard to address an issue that the president thinks is very important which is inequality, mobility, poverty and in particular thinks that you should go from a level where right now with tax credits you can below the poverty line, a family working full time to a level where with the minimum wage and those tax credits you would definitely be above the poverty line. The second thing I’d say is when we proposed it no one ever thought he’d propose in the State of the Union and then week later Congress was going to pass it. This has always been a little bit of a marathon, every time you’ve proposed it has always taken a bit of time to build the case to get the votes and to get Congress focused on it so we have always thought about this, we’ve considered it in that regard but you’ll certainly be hearing more about it.

Q: You mentioned the budget talks a moment ago and tax reform and entitlement reform…

Furman: And I did use both in the same sentence.

Q: In order to do any replacement in the sequester and any entitlement reform, do revenues have to be raised or can it be done without raising revenues? I know your position but I’m asking you where you think you stand.

Furman: I understand. I mean, our position is that we proposed a plan that does both, we’ve made it very clear to the conferees that we’d like to see something along the lines of our plan but they’re also in a process of regular order right now where they are currently considering these questions so we don’t want to sit here, both engage in hypotheticals and prejudge the work that they are doing. The conference meetings aren’t being held in the Cabinet Room chaired by the President, they’re being chaired by the members of Congress that run the conference committee.

Q: Secretary Lew last week seemed to suggest it could be done so that was not part of Congress, I’m just asking you if there’s a way you can envision, you can replace part of the sequester and do something in entitlements and not do anything about revenues.

Furman: I understood the question and you probably understood the answer.

Wessel: Was it a yes or a no?

Furman: Again, like people know where we’re coming from and it is now over there in the conference committee and they know what we’d like them to do, we’ve been clear about it, we’ve given them the same information instructions in private that we’d share with all of you in public in terms of where we’re coming from and revenue and spending together are important to the President and they’ve consistently been important to the President, it’s something he’s consistently proposed doing and they understand that that’s where he’s coming from.

Q: To ask the question in a little different way; what we’re hearing from the D who are involved in these negotiations is they are thinking that perhaps the sequester is a preferable alternative to replacing it with half tax as half spending cuts, I’m hearing that they’re inclined to let things be rather than accept spending cuts for spending cuts. Does the administration have the same preference?

Furman: I can’t give you preference orders among lots of different hypothetical rankings, you understand what we think is best, which is a balanced approach that replaces the sequester, does it with a combination of entitlement reform and tax reform and that’s what we’re urging them to do and it’s going to be up to them to figure out what to do. Democrats all year have wanted regular order in the budget process, Republicans all year had blocked it, finally come around to it and now we have that regular order and that regular order doesn’t involve any of us cheering the conference committee, it involves them doing it.

Wessel: Certainly you’re not suggesting that the President would accept something from the Congress that left the sequester in place.

Furman: No. There’s no doubt that the sequester is terrible economic policy, it’s terrible in terms of all the priorities that the government tries to achieve and it’s terrible for the macroeconomic reasons that we were talking about before but you don’t want to take the sequester and replace it with something that is just as bad or even worse. You also can’t take the sequester and replace it with something that can’t pass Congress so those economic considerations and those political considerations are the ones that you have to weigh in looking at anything. One last thing, I would say also is you’ve seen a lot of Republicans or you’ve seen a number of Republicans speak out about having everything on the table, elude to or speak about revenue and so I think you’re seeing from their side especially on things like the defense sequester which is where 100 percent of the next round of sequester is going to fall. A certain amount of desire to get out of it. You have the armed services committee Republicans too. We’re talking about everything on the table.

Q: Is there some concern within the White House that the crisis over the rollout or the Affordable Care act is going to be a major distraction and a major impediment to doing a lot of this other stuff on the budget front and economic front this year?

Furman: No. We’ve been dealing with multiple issues at the same time for the last nearly 5 years and lots of White House’s before us were dealing with multiple issues at the same time too and so I think everyone recognizes that. I think if you look at…I’m not the polling guy but my understanding is the public is not nearly as focused on the issues around the website and health-care reform as all of us are. And we should be focused and people are working 24/7 on the website and it’s debacle, it’s incredibly serious and it’s good they’re focusing on it but people want to hear about jobs they want to hear about growth and you saw the President just last week did a great select USA summit with over a thousand people from dozens of countries, dozens of states coming here about investment in America. Last week not the biggest news story in any of your papers but Judiciary Committee Chairman Goodlatte introduced the patent reform bill that was very much along the lines and shared a lot with proposals the President made in June that at the time Chairman Goodlatte praised. That will be something important for our economic growth and the budget conference committee is…as I said, they’re proceeding, they’re doing it through regular order so I don’t think HealthCare.gov is affecting their ability to deliberate and come to a conclusion at all.

Q: We’re in this situation now we’re doing government by CR [continuing resolution], it’s been one CR after another for the last few years. Can you speak about the negative things that goes for what you guys are trying to achieve? Does it kind of lock in policy that you guys don’t want anymore and prevent you from funding programs that you do or is this kind of what has to happen right now given the budget constraints?

Furman: Yes to all of the above. CR’s are like autopilot and all you’re doing is adjusting the altitude and you’re not adjusting altitude in the right direction either in this case so absolutely would love to get to a world where you can do appropriations bills, where you can look through all of your priorities and spend more, invest more in things that are priorities and also cut back in other areas especially at a time when you’re trying to cut the budget to just do that across the board is far from the best way to do that so I would love to get into a place where you could have those types of appropriations bills and that type of a thoughtful conversation.

Q: Following up on that, as best guesses are that there would be a short term resolution at a conference committee and if you set this precedent that you’re going to like…each side is going to undo the sequester a little bit at a time, a year or two at a time, you could set a couple precedents now. The easiest thing people say is that go into that list that goes back to the Biden group where you had about $200 billion over 10 years in other mandatory spending reductions, if you take from that or in any way have spending reductions that are all from the domestic side and no revenues you are in effect paying for defense with domestic and no revenues and so that you’ve set a precedent for the next time and the next time. You worry about it, does the administration worry about that?

Furman: I mean, as you know under our approach you wouldn’t be worried a precedent because you’d be dealing with it over the whole next decade. If you do anything shorter than that, yeah, absolutely you worry about the precedent and how this would…if you’re going to repeat this every year or two you worry a lot about how you set that system up.

Q: Considering that, do you see any appetite for an opportunity for rethinking some of the things we have in terms of the budget process that might help congress deal with appropriations more intelligently? Some people talk about whether the ban on earmarks was a mistake and then I realize that’s mostly a congressional thing but also things that touch the executive branch, possible alternatives or replacements for the debt limit or eliminating it or other things like that that might get a horrible 4 years we’ve had just crisis after crisis.

Furman: When it comes to the debt limit that’s something Congress would need to figure out because it’s their job to raise the debt limit and if we’re not negotiating over it, whatever, they figured out the McConnell Mechanism, they figure out these ways to make their life less difficult and they should be figuring out how to do that. We’d like to see them do it for as long as possible and as stable as possible and they’re going to need to figure out how to do that. In terms of other stuff you can always look in the context of the Biden Group, both sides looked and talked about things like biennial budgeting and whether that would create a situation where you could write appropriations bills, take more time to see if they were working and set a longer term course for the US economy so I think you can always look at different budget reforms like that but ultimately it’s the political system has to come together and have an agreement. The budget process we had worked decently well for decades, it started to go off the rails at some point, it wasn’t like … for all that time but you generally had a appropriations bills, you generally had a lot of them by the end of the fiscal year and the rest of them done shortly thereafter and so there’s no reason that the current set of rules can’t work, it’s just people need to work together to make them work.

Q: Donald stole my budget process question so I will pivot back to jobs. A lot of us are concerned of course about jobs, Republicans and Democrats and economists and a lot of us are concerned about how labor force participation has been declining for the past several years. It’s been a long-term trend, it has to be more than just raise the minimum wage. Can you give advice what you think is going on and what the present administration can do to reverse that trend so we can increase participation.

Furman: Let me answer your second question first which is what you can do and I’ll just deal with that quickly because I think most everything that gets to job creation gets a labor force participation. For the most part you wouldn’t think about how to deal with labor force participation any differently than you’d think about how to get the unemployment rate down. With the exception of part of what may be going on in the labor force participation is an increased prevalence of long term unemployment and what that does to somebody’s ability to search for a job and eventually become discouraged. And so part of that decline may be related to a large amount of long term unemployment. So to a degree you’re looking at jobs you want to not just look at overall aggregate demand which is the main thing by the way you can do about long term unemployment and do for long term unemployed but you may want to look at things like the President’s proposed pathways to work, different strategies for letting states experiment in funding a reduction in long term unemployment. In terms of why the labor force participation rate has declined, there’s no doubt that the biggest factor is the trend, you eluded to it, the male labor force participation rate has been decreasing every year since we started collecting data in 1948. I mean not every, you know, the trend has been down since 1948, it’s wiggled a little bit. For women their labor force participation rate peaked in 1998 and has generally been on the decline since then. If you look at the economic report of the president that was written in 2004 it said after 2008 we’re going to see a large decline in the labor force participation rate so this was very predictable and predicted and in fact you look at the employment population ratio, the old Social Security projections used to show that the employment population ratio right now was supposed to be falling and instead it’s flat so there’s a bunch of trend, a lot of that is demography, there’s some other elements to the trend in terms of lengthening schooling at one end and patterns of retirement at the other end. I think that’s the biggest factor. The second biggest factor is just cyclical. When the unemployment rate is higher the labor force participation rate is lower and conversely the unemployment rate comes down, that puts some upward pressure on the labor force participation rate. Those two factors alone explain most of it and there may be some small residual associated with increased long term unemployment and what that does to participation.

Q: Would the President consider looking at reforms of Social Security because of the retirement patterns and disability so that there’s more incentive to get back in the work force as opposed to somebody taking DI or retiring earlier?

Furman: When the President’s always been open to a bipartisan process working together on Social Security and I’d say the two motivations are one, solvency of making sure you’re taking a really important program and extending its life and making sure it’s there for people and two, strengthening the program and in particular looking at things like where you have elderly, poverty, especially women living alone for example, those types of things but in that context sure, you’d want to take a look at everything about how the system is functioning but I don’t think you make long run changes to Social Security based on short run cyclical phenomenon.

Q: Are there any ways to bring long term unemployed back in the labor force?

Furman: The biggest one is getting the unemployment rate down. You look at the 1990’s and one of the amazing things about as the unemployment rate got lower and lower was it just brought, you know, you could even go to a supermarket and look at the people working there and you got the sense that like people are really looking hard for people to fill all the jobs that were needed in that economy and so I think anything that gets to aggregate demand, increased certainty, confidence, fosters job creation is going to help with long term unemployed. In terms of programmatically, yeah, there’s things you can do. You see from these audit studies that you send out two identical resumes, one unemployed a month, one eight months or whatever the exact numbers were, and the 8 month person is much less likely to be hired so you can even work with employers to talk about what it is they can do to institute better practices in terms of their hiring, you can have subsidies to help people who are long term unemployed get jobs and that’s something in our pathways to work that would go through the states. You had things like the (fund that was in the recovery act that actually did quite well in terms of creating subsidized opportunities for private sector jobs. We’re trying to experiment with…we’ve tried to create a climate which states can experiment with unemployment insurance to have things like apprenticeships to basically get people into jobs and back into labor force so I think there’s a lot of micro labor markets policies. I still think the biggest dial is probably going to be the macro one though.

Q: The White House talks a lot about business tax reform but not so much individual tax reform and if you go back into fiscal cliff the White House very focused on rate increases rather than revenues from reform so my question is would the White House be open to individual tax reform plans that lowered rates draw in the base if it were to raise revenues and make the tax code more progressive or keep it as progressive as it is? Would you be open to rate reductions if there were a plan like that?

Furman: First, let me tell you why we’re focused on business reform and then come back to what you just said. We see the biggest economic gains from tax reform on the business side. Businesses are much more mobile than high income individuals are, at least in a big country like the United States and so what our rate is as compared to the rate in the rest of the world on the business side matters a lot in a way that you don’t have corresponding sensitivity of economic activity to the rate on the individual side first of all. Second of all there’s more of a consensus about how you would broaden the base and restructure the tax code on the business side to pay for those rate reductions then there is on the individual side so if you asked me as an economist what is the most important, what is the most substantively achievable and what is the most politically achievable, I think the answer to all three of those is business tax reform. That is not to say there aren’t things you couldn’t do on the individual side, obviously we’ve proposed paring back deductions and other tax incentives. We’ve proposed some simplifications and there’s a number of loopholes on the individual side as well that one would want to get at. In terms of a broader reform, we put out principles in our budget and we still stand behind those principles and those principles get at both business and individual reform and I don’t think you could get a very large reduction in rates on the individual side, I don’t think the mathematics works out for that without either having an increase in the deficit or an increase in taxes for middleclass families but there’s no…the issues on the individual side are really those mathematical ones not ideological ones. It’s not like we’re unwilling or willing to do anything, we’re willing to sit down and take a look at different plans people have come forward with and judge them and as I said in an ideal world yeah, you’d be doing both individual and business together but the last thing I’d say is I think it would just be better for the world if there were more congressional plans that elucidated some of those mathematical issues and some of those tradeoffs and were actually scored by the Joint Committee on Taxation as opposed to having this conversation over and over again in a vacuum.

Q: Back to the Affordable Care Act. Apart from the website how do you think the rollout of the ACA is going? Are you troubled by the unhappiness that you hear about the if you have it you can keep it and given the difficulty that you’re up against, the deadline to begin to sell policies and the people who show up are going to have a determination on the risk polls and what the companies think and what they offer the next time around; are we starting to tread on dangerous territory?

Furman: I think you want to look at the rollout of the Affordable Care Act as being something that’s gone on for three and a half years now and it going to go on for a lot longer and you look at staying on your parents policy until age 26, having to cover prevention, first dollar coverage of prevention, no lifetime maximums, no annual maximums, all of those types of things, then there’s all the delivery system reforms and Medicare and the role they played in contributing to the slowdown in Medicare growth and system wide growth so there’s a lot more to the rollout than just what you’re seeing right now. Obviously there’s no question that the website, as Secretary Sebelius said is a debacle, no one is remotely happy with the way the website has gone and people are working very hard to fix it. The first date anyone can have health insurance through that website is January 1st 2014 whether the website was working perfectly on October 1st or whether it was working the way it was on October 1st. You see Massachusetts where the enrollment started very slow and then built up. A lot of people wait until the last minute to do things and people wait until the last minute. The website will be available for the majority of the people by the end of November so that will be enough time for next year’s enrollment and certainly enough time for the last minute people who are on March 31st shortly before midnight trying to get that policy because they’re worried about making sure they have health insurance and motivate it by the individual responsibility requirement. In terms of the cancellation issue, I think we sort of had a little bit of collective amnesia. There were a huge number of problems in our health system before. One of the big problems was in the individual market, every year tons of people didn’t have their policies renewed because they got sick and were too much of a risk because the policy wasn’t continued, it was a little bit like the Wild Wild West and things were being canceled all the time, things weren’t available, prices were terrible, coverage was terrible so it’s not like there was some perfect stable wonderful system and then along came Obamacare and every problem in the country is now a result of that. In fact precisely the opposite. You’re now creating a system where people will be able to have more stable insurance that they stay on that you can’t deny them entry into and as part of that process people who got plans that have changed since the Affordable Care Act passed either because they signed up after the Affordable Care act or because those plans made themselves worse. If those are substandard policies you can’t continue them next year and there will be a lot of new options and half those people will have tax credits to pay for those options. The New York Times had a story today, it went through the upsides and the downsides and there were definitely downsides but the millions of people have a free option if they want it. Half the uninsured have an option that costs less than 100 dollars a month, half of the young uninsured have one that costs 50 dollars a month or less. We’re trying to take the bigger picture on the longer view while working tirelessly about that short run thing of getting the website fixed.

Q: I wanted to ask you about the housing market, you made a reference briefly to it before. The President has spoken a lot about his concern that mortgage credit is still a barrier to the economy and he certainly doesn’t want to return to the Wild West, his concern is that there’s some limited access right now for the families and the benefit of the house price appreciation we’re seeing is going through. Most of the bills in Congress that talk about Fannie and Freddie would probably tighten credit. How are you thinking about access to credit and the housing market and how do we get to a sensible place?

Furman: All good and important questions. I think the big picture is two things. One is that access to credit has tightened very significantly and you have people like not just the President of the United States but also Chairman Bernanke have talked about how those credit standards have gotten over corrected for what we saw before the crisis. We’ve seen a lot of progress in home ownership of building back, growing 10 to 15 percent a quarter, the fastest growth rate of any major component of GDP and I think we have a lot more potential there, we’re building 900 thousand houses a year, we’re forming over a million households a year plus houses depreciate so we should probably be building about a million and a half and I think at some point in the next few years we’ll get there, don’t know exactly when but that’s an extra 2 percent of GDP that we haven’t seen materialize yet and we know is there. So the question is how do you get there a little bit faster and how do you do it while helping and protecting families? Part of that is things we’ve already done, part of it is other things that we should have already done like confirm an FHFA director would help with a lot of these issues and then as I think you think about a transition to a mortgage finance system you want to be doing two things there. One, you want to be protecting taxpayers and putting the private sector at risk first and then the second is you want to make sure you’re preserving things, the strengths that we’ve had of our mortgage finance system like the 30 year fixed rate mortgage and access to credit and I think some of those issues are as you eluded to in the question transitional issues of you can’t have the old system, you can’t have the current system too with the size of the government footprint in the housing market. That’s just not a sustainable long run thing so you’re going to have transition yourself out of that and in the context, the other thing you want to do is take very seriously affordability so you’re making sure you’re taking some of the money you get, don’t do it in an untransparent way the way Fannie and Freddie do but do it in a transparent way where it’s clear what costs you’re imposing, who’s paying it and where it’s going and that it’s not the tax payers that are being put at risk. That’s also an important part of that new system. That’s another way we’re making progress by the way so there’s a lot of different things other than the fiscal that a lot of the people around the table care appropriately about where you see progress.

Q: I wanted to ask you, actually return to a question David asked earlier and frame it in a different way; forgetting what it is the government should be doing to address this problem, right now we have a period of very weak GDP growth, had a period of historic corporate profits. That on the face of it is very confusing I think for ordinary people. Can you explain what’s going on just in the economy to make that happen?

Furman: One possibility that may be a partial explanation of this is we have two measures of overall economic activity. One is gross domestic product, one is gross domestic income. They are supposed to be identical, they’re both measured using different data so the actual measurement of them turns out to be different. Right now GDI is growing a lot faster than GDP. The divergence between them, I don’t know, it’s large by historical standards. I don’t know how large by historical standards. Some of the things like profits look less unusual when measured on the basis of GDI than GDP so one thing is you would just think that when you have two things that are measuring the same phenomenon the truth is probably somewhere in between them so it’s possible that GDP is doing a bit better than what we’re measuring right now and as a result the profit puzzle is a little bit smaller than what you were measuring right now but I think the other thing is you’ve just come through a very deep recession and one thing you see employers doing is not hiring as many people, not investing. The other part of this puzzle is why investment is relatively low relative to profits. Not investing and still being a little bit cautious about the uncertainty and things like our fiscal situation and the uncertainty about the extent that there will be growth in the future so they’re doing decently well in terms of sales now, in terms of revenue now, costs are lower because they’re not hiring as much as you’d like and the downside of that is what it means for where we are right now, the good side is what it means in terms of your potential, that there’s a lot of potential to increase investment, a lot of potential to increase hiring and so we need to do our part in terms of increasing certainty and doing some of the things that will help catalyze job growth and investment from business tax reform infrastructure and everything else.

Seib: Can I just interject a quick question; in that arc or uncertainty that you just referred to, I wonder how much uncertainty is being injected into the system now by the reality that there has to be a budget deal and there has to be something we haven’t discussed much, another agreement to raise the debt ceiling. I think everybody in this room and all over this town says we’re not going to go there again, Mitch McConnell said we’ll never do it again but we had a poll last week in which well over half the people we asked said they expect the government to shut down again in January. There may be a giant gap between the elites of Washington think the level of uncertainty is on those fronts and what regular Americans think and maybe business people as well. I just wondered if you could talk about how much of the uncertainty in the business investment climate now is still being fueled by the shutdown scenario, the need for a budget and the debt ceiling idea.

Furnam: I think it’s a very hard thing to quantify the magnitude but it’s a very easy thing to be certain of the sign and the sign is negative. This doesn’t help the economy and if you look we did this whole analysis of weekly economic activity and there’s three times you’ve seen sharp declines in it during this recovery. One was the episode we just had in October, one was in May/June of 2012 around the euro zone and the third was in August of 2011 and thing about August of 2011 is we didn’t shut down and we didn’t default and it still is a meaningful blow to the economy and these things just fuel it.

Seib: But the markets seem to blow through October without a blink, in other words they didn’t seem to share the uncertainty but in other places in the economy it showed up in real ways.

Furman: I think there was at least a blink there.

Seib: Not much.

Furman: Yeah, but if you look at unemployment insurance claims, Gallup job creation, chain store sales, consumer confidence, steel, any of these types of indicators that we were looking at on a weekly basis, all of those took a pretty big hit and all of those are a little bit of a better measure as to what happened to the economy in October as opposed to what markets are doing.

Q: I have a similar problem but in light of your last question so there’s the debt ceiling piece and then there’s the lack of a budget deal piece and I was just wondering based on what you’ve said would you then think that putting in place the medium term debt deal that deals with all these issues, making sure we have a budget in place would add to certainty, add to jobs, add to growth?

Furman: Yes, absolutely. If you did something like what’s in the President’s budget or the President’s offer to Speaker Boehner or on the neighborhood of Speaker Boehner’s last offer to the President in December of last year, you’d have much more certainty and you would have a much better fiscal trajectory both in the short run in terms of job creation and medium and long term in terms of deficit reduction. I think the logic right now is the more you do on sequester the more you’re going to end up doing in terms of tax loop holes and entitlement changes that deal with the deficit over the medium and long term and so if all you care about is sequester and up front demand the flip side of that is going to be that you’re doing more in terms of taxes and spending for the deficit in the medium and long run and vice versa. If you happen to be the type of person that only cared obsessively about the deficit all of the time you’re only going to get more of a deficit reduction. You’re only going to get that deficit reduction if you’re doing something about the sequester up front job, it’s not going to pop out by itself. In a sense there’s a little bit of an economic and political no brainer to be had here whether people will have enough brains to snap that up is more of an open question.

Q: A quick return for a moment to individual tax reform. As an economist can you conceive of a tax reform that would be stored as revenue neutral by JCT but that would still stimulate increased growth and if so what would be in it?

Furman: I’ll just give you my own economic view which is I think the bigger issues in individual tax reform are reducing what I’d call micro economic distortions rather than macroeconomic supply savings and growth. I think there’s some of the second, I don’t want to say there’s none of that but I think it’s more the former. And to explain what I mean, you look at something like the President’s proposal that limits the value of tax expenditures for high income households to 28 percent. Partly that’s motivated by there’s something inefficient about the magnitude of subsidies we have for a lot of those activities for high income households right now that leads to a potential misallocation of capital or misallocation of consumption and by reducing those subsidies you can actually just get not necessarily a higher level of GDP but potentially a better composition of GDP. I think there’s potentially some scope for higher growth from the individual side but I’m a little bit more skeptical, again, a little bit more skeptical of that for two reasons. One is I don’t think there’s an economically and politically plausible plan with significant rate reductions first of all. Second of all I don’t think the significant rate reductions would matter nearly as much, I don’t think people are hugely responsive, especially when it comes to things like labor supply and savings in the way that something and that last point is compounded by the fact that a lot of the ways in which you broaden the base to pay for lower rates and Alan Viard at the American Enterprise Institute has written about this, actually themselves are effectively increasing a little bit of a tax on labor supply for more complicated reasons, at the same time their rates are going the opposite direction so you don’t even necessarily have a better incentive when you do the math so I think on the individual side it’s more about simplification and efficiency than it is about growth and I think the business side is more about growth although some of that comes from simplification.

Q: What are going to be the drivers of growth in the real economy ahead and does your assessment of where the actual growth is going to come from help share your policies at all?

Furman: We try to understand where growth is going to come from and we have forecasts but we’re not central planners so there’s not a sense of like oh, we know the growth there so we’ll do more of that or less of that but it is important to do your best to understand. As I said before, I think housing and consumer durables have a lot of potential cyclically, that’s because we’re still about 2 percent of GDP below our normal level of housing investment and I think there’s good reason to believe we’re going to return there. I think if you look consumer durables you’ve seen strong growth and there’s still a lot more potential there. The average age of a car on the road is 11.4 years, highest ever. Cars are better than they used to be, they’re not so much better so some of that is pent up demand that I think can still express itself. I think in terms of cyclical you’re going to have a better outlook for aggregate demand because we had been through all of this deficit reduction. We have some coming forward but we don’t have nearly as much and that just means that will show up across the board especially in an area like consumption and then finally if you look over the medium and long run I think health, energy and technology are the three biggest structural changes that are enabling and strengthening the economy both in the cycle but also after we get out of this cycle and all of those point to policies, all of the above strategy on energy, everything we’re doing to bend the cost curve on healthcare, on technology, everything from patent reform to reallocating spectrum to investments in R&D which itself is a budget policy related to the sequester so in a sense the whole agenda falls under…or a lot of the agenda falls under the heading of those different cyclical and structural trends.

Seib: Jason, thanks very much. What you just said make me…I don’t know if it makes me feel better or worse about my 11.4 year old car. Better because I’m in good company or guilty because I should be going and buying a new one.